1. Field of the Invention
This invention relates generally to assessing vehicle dealership default risk and, more specifically, to a method for assessing the risk of a vehicle dealership defaulting on a financial obligation.
2. Background Art
In the automotive industry, the ability to accurately forecast a vehicle dealership's risk of defaulting on a contractual obligation to a vehicle manufacturer is critical. Default occurs when the dealership cannot meet their contractual obligations to the vehicle manufacturer.
Many risk models exist that are capable of assessing default risk across all industries. For example, the RiskCalc model, available from Moody's Investor Services of New York City, N.Y., predicts default risk for private companies. Company Watch, Inc. of London, England, offers a risk rating model based on publicly available information for British companies. KMV Inc. of San Francisco, Calif., offers a risk assessment model for public companies based on stock price volatility. These models do not adequately predict the risk associated with privately held vehicle dealerships due to the lack of comparability between dealership financial data and that of companies of similar size in other industries.
One known method for assessing default risk of vehicle dealerships segments the dealerships into four risk categories. The method uses the following factors: years in business, trade and bank reference, wholesale audit performance, months since last returned check or deft, used floor plan and capital loans and working capital, tangible base capital (TBC), annualized profit percentage, and debt to TBC ratio. Based on these factors, a dealership can be ranked in category A, B, C, or D, with A being the lowest risk and D being the highest risk. In certain situations, the factors considered do not accurately segment vehicle dealerships based on their risk characteristics.
There exists a need for a method and system of assessing vehicle dealer default risk accurately by concentrating on the automotive industry and vehicle dealership financial statement data. Additionally, there is a need for a method and system of assessing default risk that segments vehicle dealerships based on their default risk characteristics.